8 Basic Must Know Forex Trading Terms

Thinking to start forex trading? Do you want to make a good profit with forex trading? Then you need to know some basic rules of forex trading to avoid losing your investment. These rules are not uncommon, but most of the people don’t know it accurately. So, here I am going to share some of the basic rules.

Pip

This is the most common word of forex trading. The full meaning of PIP is ‘percentage in point.’ This an indicator for forex trading. This is a unit of measuring the loss or profit. The unit is a numerical value. One PIP equal 0.0001. Forex brokers calculate it as the percent of profit or loss. You will sometimes hear that someone is saying that I have made a good number of pips.

Bid

When you are going to start a trade, you will hear about the term. This term is the best possible price at which a trader can buy something at the current time. This is the highest price which a trader will spend to purchase a currency. The price may vary with time to time. Also, it is necessary to fix the bid price correctly to avoid any loss.

Ask

Like the bid price, there is another term which is known as ask. If you are a trader, then this is the best possible price which you can sell instrument when you are making the trade. This is the lowest price for the seller and the highest price for the trader.

Spread

This is mainly the difference between pips. The difference between the asking price of an underlying asset and the bid price. This is an essential part of trading, so it is so important for a new trader. To calculate the amount of spread, you need to minus the Bid(sell) from the Ask(Buy).

Leverage

This term is mainly for the margin. This is a ratio which defines the loan amount, “margin” which a trade is allows the user to gain access to greater sums or trading. This term express both the profit and the loss. It needs to use wisely to avoid any loss in your trading.

Margins

As I have mentioned about margin, this is another important part of FX trading. This term can be considered as the minimum collateral or deposit. This term is necessary when you are thinking to take some loans. When you don’t have enough funds in your trading account, you will get a margin call notification.

Chart

Like the stock exchange of traditional share market, there is also a chart in forex trading. This chart let you know where you need to know sell your currency for the maximum profit. This is also a good thing to know the overall condition of the current market.

Slippage

If you are newbie, then you will see there is a small difference between the price you are expecting and the price of the execution. When you will find a difference like this, it is called as slippage.